The present invention relates to a system and methods for a business tool for analyzing the role of products in a retail setting for improving the understanding of consumer perception of products. This business tool may be stand alone, or may be integrated into a pricing optimization system to provide more effective pricing of products. More particularly, the present category role analyzer system may identify products, or product categories, belonging to classes of products. These classes or “roles” include image categories, assortment completers, niche products and profit drivers. Each of these defined roles may be characterized as a function of relative elasticity of the product and relative sales volume of the product. From these generated product/category roles the system may generate further business decisions such as price optimizations, product assortments and promotion decisions. Additionally, products identified as image items may be readily compared to competitor's pricing to facilitate favorable consumer perception of pricing for the client store.
For a business to properly and profitably function there must be proper pricing of the inventory which, over a sustained period, effectively generates more revenue than costs incurred. In order to reach a profitable condition the business is always striving to increase revenue while reducing costs. Further, the perception of end consumers may likewise dictate how much patronage the business gets.
One such method to increase revenue is providing a desirable set of products and properly pricing these products or services being sold. This includes identifying “high visibility” items and pricing them accordingly. Additionally, the use of promotions may generate increased sales which aid in the generation of revenue. Likewise, costs may be decreased by ensuring that only required inventory is shipped and stored. Also, reducing promotion activity reduces costs. Thus, in many instances, there is a balancing between a business activity's costs and the additional revenue generated by said activity. The key to a successful business is choosing the best activities which maximize the profits of the business. Thus, an image item may be sold at a net loss for the business in efforts to draw in larger numbers of customers. However, this strategy relies upon accurately identifying the image items. Selling items which are not image items at a loss leads to very little additional patronage, as well as the loss incurred by the sale of the product.
Choosing these profit maximizing activities is not always a clear decision. There may be no readily identifiable result to a particular activity. Other times, the profit response to a particular promotion may be counter intuitive. Thus, generating systems and methods for identifying and generating business activities which achieves a desired business result is a prized and elusive goal.
A number of business decision suites are available to facilitate product inventory, pricing and promotional activity. In these known systems, product demand and elasticity may be modeled to project sales at a given price. The most advanced models include cross elasticity between sales of various products. While these methods of generating prices and promotions may be of great use to a particular business, there are a number of problems with these systems. Particularly, there has not previously been any mechanism for accurately and reliably identifying product roles.
For example, in the past, experienced retailers identified “Key Value Items” (KVIs) using intuition and experience in the retailing industry. These key value items are functionally equivalent to image items. These are items of high volume and subject to large shifts in sales with changes in pricing (high elasticity). KVIs/image items may likewise be referred to as a “loss leader” or “leader”.
Some items are well established image items, such as milk; but with changing consumer purchasing behavior and changes in available products and product assortments, it is difficult for retailers to identify changes and new image items.
Image items may be identified by extreme experimentation, but this typically requires reducing the price of the tested item below profitable levels. For most businesses this experimentation is too risky to undergo. Thus, an improved and accurate method of identifying image items is needed. Further, although typically ignored by many businesses, other product roles exist beyond image items. By being able to identify these other item roles, product pricing and promotion activity could be further improved.
It is therefore apparent that an urgent need exists for a system and method of generating accurate and reliable sets of item and category roles. This role analyzer system may identify and classify items into roles for comparison purposes. When coupled to a pricing optimization system, the role analyzer system may generate pricing and promotions for the given products more efficiently. This role analyzer system provides businesses with an advanced competitive tool to greatly increase business profitability.